FISCAL NOTE
Date Requested: January 31, 2024
Time Requested: 04:39 PM |
| Agency: |
Division of Regulatory and Fiscal Affairs, WV |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3065 |
Introduced |
SB460 |
|
|---|
| CBD Subject: |
Governor -- Bills Requested By |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
Senate Bill 460 provides for a nonrefundable child and dependent care credit against personal income taxes in the amount of 50 percent of the allowable federal tax credit provided for under 26 U.S.C. § 21. This would impact tax years beginning on and after January 1, 2024, making the bill retroactive to the beginning of Tax Year 2024. The Division of Regulatory and Fiscal Affairs (RAFA) concludes that this legislation would result in a decrease of general revenue collections by approximately $4,330,500 per year.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
-4,330,500 |
-4,330,500 |
Explanation of above estimates (including long-range effect):
Senate Bill 460 would provide for a state tax credit against personal income taxes in the amount of 50 percent of the federal CCDC allowed under the provisions of 26 U.S.C. § 21. This credit would be retroactive to tax years beginning on January 1, 2024, and would be nonrefundable.
The Child and Dependent Care Credit (CCDC) is a federal tax credit for parents or caregivers to help cover the cost of qualifying care expenses for children or other qualifying dependents. Those intending to claim the credit must have earned income throughout the year and paid for care expenses so that they could either work or seek employment. If married, both spouses must have earned income.
The CCDC is most beneficial for those who anticipate owing taxes when they file because the credit is nonrefundable. Any taxes owed will be decreased by the credit amount, but taxpayers will not receive any excess in the form of a refund. The CCDC is generally worth 20 to 35 percent of up to $3,000 for one qualifying dependent or $6,000 for two or more qualifying dependents. How much of the credit one is eligible for depends on their adjusted gross income, which determines the percentage of qualifying expenses one can deduct. The more you earn, the lower the percentage of employment-related expenses that are considered in determining the credit. Once a taxpayer's adjusted gross income is over $43,000, the maximum credit is 20 percent of their dependent care expenses.
To calculate the costs of SB 460, RAFA used Statement of Income data from the Internal Revenue Service. This data includes the number of returns filed in each federal tax bracket with a breakdown of all credits each return claimed, and the total amount of credits claimed over those returns. Due to the availability of data and the implications of the pandemic, RAFA used IRS data from Tax Year 2019. The total amount credited to West Virginia taxpayers from the CDCC was $8,661,000 with 16,300 claims. Since SB 460 would amount to 50 percent of the federal CDCC, RAFA calculated 50 percent of the $8,661,000 and totaled $4,330,500 for the potential cost of this bill.
Memorandum
Although all 16,300 returns claiming this credit at the federal level would be eligible for this state tax credit, they may not all claim it. This would reduce the costs to the state.
However, an additional tax credit for child care could potentially incentivize people to seek child care services. In effect, the increased demand for child care services may lead to improvements in the quality and availability of child care options as providers respond to market demand, increasing claims and the overall cost of this bill.
If the credit allows more individuals to enter or re-enter the workforce, there could be positive economic effects that RAFA is unable to calculate. This could include increased tax revenue, higher consumer spending, or reduced dependence on other social welfare programs.
This bill could have slight administrative costs for the Tax Division of the West Virginia Department of Revenue.
Person submitting Fiscal Note: Peter Shirley
Email Address: peter.shirley@wvlegislature.gov